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Action Plan Seeks to Reform Fannie Mae & Freddie Mac

courtroom-scales [1]The Community Home Lenders Association [2] (CHLA) released a housing finance reform Action Plan [3] Monday that outlines Fannie Mae and Freddie Mac reform steps, preserves a government guarantee, and protects taxpayers. 
The Action Plan is a response to concerns surrounding pending Congressional GSE proposals that may promote market concentration and bring back big bank practices that fueled the housing crisis in 2008.
“The Community Home Lenders Association supports Congressional efforts to expand risk sharing pilots, develop a Common Securitization Platform, and stop G fees from being used as a Congressional spending offset,“ said Scott Olson, CHLA executive director.”  “But CHLA wants to make sure that any Preferred Stock Agreement limits do not undermine the GSEs’ role in providing a small lender cash window, and that up-front risk sharing is not used in a way that leads to a mortgage market dominated by the big banks.”

CHLA’s Action Plan recommends:

  1. The GSE Profit Sweep Should End – Treasury should put profits into a Capitalization Reserve Account, to both provide a short-term loss reserve and a long-term capital source to ensure the GSEs’ continued critical role as a reliable Cash Window for smaller lenders.
  1. Congress should direct the FHFA to develop a plan to show how the GSEs could be recapitalized, and whether it recommends doing so.
  1. GSEs Should Control “Up-Front” Risk Sharing Pilots, with protections against market concentration, including bans on volume discounts and bans on securities firms doing risk sharing MBS from dealing preferentially with bank affiliates.
  1. FHFA should complete work on a Common Securitization Platform (CSP) & Single Security – but should not turn over the CSP (developed at taxpayer expense) to Too-Big-To-Fail bank/securities firms.
  1. The Federal Home Loan Banks should not use an explicit or implied taxpayer guarantee for MBS unless all mortgage lenders, including non-banks, can participate on a non-discriminatory basis.

CHLA reflects concerns that proposals to turn the Common Securitization Plan over to private firms or let banks use “up-front” risk sharing in an anti-competitive manner risks a return to the same big bank practices that led to the housing crisis.

“Consumers’ access to credit is best served by a competitive mortgage market, with full participation by non-banks and small banks,” Olson said. “CHLA agrees that Fannie and Freddie should be reformed to protect taxpayers – but they should also maintain their key role as a cash window and should be in control of obtaining risk sharing to avoid the big banks controlling the market.”

The plan also suggests that Congress direct FHFA to present a GSE Recapitalization Plan to Congress no later than September 6, 2016, the 8-year anniversary of the conservatorship of Fannie Mae and Freddie Mac.